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Landmark Real Estate News

Commercial Loans Still Available, But A Bit Harder To Find

Monday, December 8 2008 12:00 AM

Despite the residential melt-down and tightening of credit requirements, commercial financing is still available. It's just a little harder to find.

Now more than ever, obtaining a commercial loan is based on a borrower's relationship with the lender and the fundamentals of the deal. If the borrower has the relationship with the lender, the fundamentals of the loan proposal are sound and the borrower has the ability to carry the loan for a period of time if the project flounders, borrowers will find financing.

It may take time to locate the right lender. For instance, some lenders might decline bidding on a loan opportunity if they feel their portfolio is not balanced with their preferred percentage of retail, office, multifamily or industrial loans. In a recent focus group meeting I attended, Jeff Ronen of Value Place Hotel Group said it is not uncommon to visit with 10 to 15 lenders before finding one who is looking for hotel loans in certain sub-markets.

Also, in preparing to get a new commercial loan, allow additional time for underwriting, approvals and time to provide additional information to the lender. For large projects, it simply takes more time to get all of the parties on the team comfortable with the project. The lender is part of the team.

Another key consideration in commercial real estate development is construction costs. For years we have heard about the increases in costs of building materials. However, with the recession and major changes in economic indicators, contractors and developers may find that certain materials' costs have not increased as suppliers and vendors bid jobs or materials more competitively.

Another question developers must answer is timing. When is the right time to start a project? How much time does it take to get the project from the cocktail napkin to producing income? Do the market and demand support the project?

If the financing and construction costs are in order, the final element is the tenants. In Wichita, there are a lot of national tenants waiting for the right time to enter the market or to add locations. Reasons for a delay include soft sales systemwide or adjustments to expansion plans. Other national tenants have decided to continue expansion and negotiate the best deal they can in this volatile time.

The retail demand in Wichita has slowed over the past 12 months, and we see that trend continuing for at least another six months. There are some great projects that when completed will define new sub-markets in north Wichita and south Wichita when the anchor tenants are ready to come to the table.

Developers will continue to work on land, entitlements and zoning on certain tracts to be ready to make deals and start construction when the time is right. In the meantime, well-located real estate will continue to thrive as the remaining tenants seek out the best locations available.

Brad Saville is president of Landmark Commercial Real Estate.

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